Apple using iPhone to play AT&T against Verizon?

By Sinead Carew and Gabriel Madway - Analysis

NEW YORK/SAN FRANCISCO (Reuters) - Apple Inc (AAPL.O) appears to be playing the top two U.S. mobile operators AT&T Inc (T.N) and Verizon Wireless against each other as it shops for the next distributor for its popular iPhone.

Whether one or both operators sign a deal, analysts are in no doubt that Apple wins in the end.

Apple has an exclusive and very lucrative deal with AT&T -- believed to run into 2010 -- to carry the iPhone on its Global Service Mobile (GSM) network. Research firm iSuppli estimates that Apple earns a profit margin of more than 50 percent for iPhone.

But Lowell McAdam, the head of Verizon Wireless, recently spoke with Apple Chief Executive Steve Jobs and senior Apple executives about wireless devices, said a spokesperson for Verizon Wireless, a joint venture between Verizon Communications Inc (VZ.N) and Vodafone Group Plc (VOD.L).

The spokesperson declined to discuss what devices the executives discussed, or when they might hit the market, but several media outlets have reported that Apple is talking with Verizon about carrying an iPhone on its network.

"It makes sense for Apple to spread the love to Verizon and it makes sense for Verizon to have iPhone and it makes sense for AT&T to make sure that doesn't happen," said Roger Entner, the head of telecom research at Nielsen.

"The winner is Apple either way," he said.

Adding Verizon as a carrier could more than double Apple's current addressable market; AT&T has about 78.2 million wireless customers, while Verizon has 86.6 million, according to their most recent quarterly reports.

But AT&T, which had 1.6 million new iPhone activations in the first quarter this year, is expected to fight tooth and nail to keep its iPhone exclusivity.

AT&T already sells iPhone for as little as $199 after paying a huge subsidy to Apple to boost sales. The iPhone has helped boost AT&T's subscriber numbers and data service revenue in a slowing market, where most people already have mobiles.

Apple has said it has little interest in offering a phone for Verizon's Code Division Multiple Access (CDMA) network, which is available in much fewer countries than the rival GSM standard AT&T uses.

"Verizon is on CDMA and we chose from the beginning of the iPhone to focus on one phone for the whole of the world," Chief Operating Officer Tim Cook said on Apple's quarterly earnings conference call last week. "And when you do that, you really go down the GSM route."

However, Verizon Wireless plans this year to start building a new network based on LTE, an emerging high-speed wireless technology that is expected to be eventually widely adopted by other operators around the world.

BARGAINING TACTICS

Apple is widely expected to release a new iPhone later this year, along with some sort of small touch-screen computer.